FRA issues controls for licensing SME finance companies

One of each SME finance company’s founders must also be a legal person with an ownership stake of no less than 50% in the company’s capital

  
Image used for illustrative purpose. A bank employee counts stacks of Egyptian 5 pound and 50 piastre notes as he works at Bank Misr in downtown Cairo, Egypt, June 8, 2016.

Image used for illustrative purpose. A bank employee counts stacks of Egyptian 5 pound and 50 piastre notes as he works at Bank Misr in downtown Cairo, Egypt, June 8, 2016.

REUTERS/Amr Abdallah Dalsh

The Financial Regulatory Authority (FRA) has issued licensing rules and procedures for companies wishing to engage in financing activities of small and medium-sized enterprises (SMEs).

The new regulations will also be applied to companies wishing to combine SME finance with microfinance.

FRA Chairperson Mohamed Omran said that companies under establishment willing to engage in the activity of SME financing must take the form of a joint-stock company. This will ensure that it has issued and paid-up capital of not less than EGP 30m.

One of each SME finance company’s founders must also be a legal person with an ownership stake of no less than 50% in the company’s capital, with the contribution of financial institutions not less than 25%.

The company’s activity must be limited to practicing financing of SMEs, unless it is authorised to practice the activity of microfinance in accordance with the stipulated provisions. Such companies can also practice other financing activities if they have a license to engage in other non-banking financial activities, in accordance with the controls set by the FRA’s Board of Directors.

This shall happen while adhering to the rules of corporate governance of companies operating in the non-banking financial activities field, issued by the authority’s Board of Directors.

Proof should be provided that there is a contract with a credit inquiry company licensed by the Central Bank of Egypt (CBE) to inquire about clients. Moreover, it should join the Egyptian Federation for Financing Medium, Small and Micro Enterprises.

He explained that the FRA’s Board of Directors saw the number of beneficiaries increasing to about 3.1 million, with a total financing balance of EGP 17.8bn by the end of September 2020. It also found a need to ensure the presence of professionals with experience in the field of banking and non-banking financing  for those in charge of financing SMEs.

The controls stipulated the availability of experience in one of the areas of banking and/or non-bank financing of no less than 10 years for the Managing Director. He is also required to have previously held a supervisory position of an appropriate level in a bank or non-banking financial institution.

The FRA also prefers that two-thirds of the board have at least five years of experience in banking or non-banking financing.

Omran indicated that obtaining a licence to practice the activity of financing medium and small projects and micro-enterprises together, in accordance with Board Resolution No 164 of 2020, requires that a declaration be submitted from the company’s legal representative. This will be related to the company’s holding separate financial accounts for practicing the activity of financing SMEs, and preparing independent financial lists in accordance with the controls issued by the Authority in this regard.

The presented economic feasibility study includes a work plan for at least three years. It should include the company’s vision and strategy in practicing the financing activities required collectively.

It should also include a minimum target market share, target geographical areas, target customer segments, operating mechanisms, types financing products, acceptable level of risk, and operating economics.

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